Settlement of the year

Legal observers seeking to declare a settlement of the year would have had to wait just about until the last minute to catch the resolution of the class action classic brought against Toyota. As the Wall Street Journal presents it, the class-action lawsuit alleges that a flaw in Toyota’s electronic throttle-control system—and not ill-fitting floor mats and sticky accelerator pedals—were causing Toyota drivers to accelerate out of control and crash. Last week brought the announcement of Toyota’s agreement valued at more than $1 billion to settle the lawsuit involving “unintended acceleration” in certain Toyota, Lexus and Scion models. Under terms of the settlement, filed last week in federal court in Santa Ana, Toyota will install a brake-override system in an estimated 3.25 million vehicles and compensate car owners for the reduced value of the vehicles, among other terms.

The settlement leaves two lawsuits related to Toyota’s 2009-2010 recalls standing as well as all personal injury and wrongful death lawsuits against Toyota. The Los Angeles Times reports:

According to attorneys for the plaintiffs, the estimated value of the settlement makes it the largest of its kind, although there have been larger non-auto industry class settlements in recent years. They said the settlement provides that 16 million current Toyota owners will be eligible for a customer care plan that provide a warranty for certain parts alleged to be tied to unintended acceleration claims.

If you thought that there where there was smoke there must have been a fire, I believe you’d be mistaken:

Toyota has maintained that its vehicles were free from electronic flaws that caused sudden acceleration. The NHTSA and NASA investigated, but was unable to trace a defect.

“This was a difficult decision — especially since reliable scientific evidence and multiple independent evaluations have confirmed the safety of Toyota’s electronic throttle control systems,” Christopher P. Reynolds, Toyota Motor North America’s chief legal officer, said in a statement. “However, we concluded that turning the page on this legacy legal issue through the positive steps we are taking is in the best interests of the company, our employees, our dealers and, most of all, our customers.”

In other words, the evidence supporting the claims against Toyota was on the thin side. By contrast, the prospective award of attorneys’ fees to the plaintiffs’ class counsel is on the fat side, and is the inevitable sidebar to this settlement. As is often the case, no one comes out of the lawsuit in better shape than the attorneys. The Wall Street Journal plays it straight:

Toyota has agreed to pay legal fees as part of the settlement. Steve W. Berman, a managing partner in the firm, estimated fees of $200 million, about 18% of the total. According to the National Association of Legal Fee Analysis, that percentage would top all others in class-action settlements of more than $1 billion, and tie for third among fee percentages in class-action settlements of more than $300 million.

The amount would be spread among 25 firms and about 85 attorneys who worked on the case. The settlement doesn’t include any admission of fault.

Hagens Berman has won a number of big settlements. The firm and Mr. Berman were the lead attorneys representing 13 states in suits against the tobacco industry that led to a multibillion-dollar deal. It also won a settlement from Exxon Mobil Corp following the Valdez oil spill off the coast of Alaska. Mr. Berman has been named one of the 100 most powerful lawyers in America by the National Law Journal.

Mr. Berman, 58 years old, in an interview this week, said the case against Toyota had several challenges, particularly after the National Highway Traffic Safety Administration and the National Aeronautics and Space Administration could find no evidence of electrical glitches in Toyota’s throttle control system.

The lack of merit to the case unfortunately no deterrent to the attorneys’ fee award. On the contrary, I believe it may be one of the factors that can be used to support enhancement of an award of fees under the rubric of “risk.” This was a risky plaintiffs’ case into which the attorneys devoted their resources. The Journal touches on it at the end of its sidebar:

Given the risks and expense of dragging the case to its jury trial conclusion, however, it made sense for both sides to settle it, [Berman] said.

“After two years of intense work, including deposing hundreds of engineers, poring over thousands of documents and examining millions of lines of software code, we are pleased that Toyota has agreed to a settlement that was both extraordinarily hard-fought and is exceptionally far-reaching,” Mr. Berman said in a statement.